A year ago, the food tech sector was booming. Funds were plentiful, investors were upbeat, and a new company seemed to be coming up every minute. Cut to a year later, and things aren’t quite so rosy. There have been murmurs of overvalued companies, and investors are being more circumspect with their cash. One sector that has been particularly hard hit is the food tech industry.
The first worrying signs came with a Mint’s exposé at the goings on at Foodpanda. Foodpanda was India’s largest food ordering aggregator, serving over 13,000 orders per day. The Mint story revealed large-scale irregularities at the company, including fake restaurants with fake orders that were driving up sales, and tales of cronyism amongst the top management. The came the news that Foodpanda’s closest competitor, Tinyowl, which had been growing rapidly, was going to retrench 200 employees. The news surprised the industry, as Tinyowl had announced plans to grow to 50 cities soon, and a layoff didn’t sound like the best way to achieve it.
Dazo shut down soon after, supposedly due to lack of funds. Amidst all this SpoonJoy said it was scaling down operations, and a few weeks later was acquired by Grofers.
Amidst this activity among the smaller players, the bigger players also appeared to stumble. Zomato, one of India’s biggest startup success stories, came out with the sobering news that it was letting go of 10% of its staff. Things got much worse for the company last week, when a bitter email that CEO Deepinder Goyal sent to his employees was leaked, in which he’d chided his sales team for not working hard enough, and saying that the company was falling short of its revenue targets for the first time in five years.
And then, just today, TinyOwl announced that it was cutting a further 100 jobs, and shutting offices in four cities. The Mumbai office will now look at operations in Delhi, Hyedrabad, Chennai and Pune. TinyOwl has reduced its head count from 1000 earlier this year to 650 today.
Cost cutting
One reason that all these startups are struggling is spiraling costs. Driven by the intense competition, companies have been offering bigger and bigger discounts in a bid to entice consumers. And now it’s starting to hurt.
The startups are learning though. TinyOwl has decided to go in for automated order processing which will reduce its cost from Rs.30 per order to just Rs.3. Due to wafer thin margins in the food ordering business, the way forward seems to be automation. According to Shashank Singhal, chief executive of Dazo, “Food tech is a capital intensive field, but I do think the market will bounce back in a few months and we’ll see a lot more funding.”